Should there be a mandatory register of beneficial ownership of corporate structures in every country?

The Cayman Islands approaches this question from the perspective of a jurisdiction with its own brand new mandatory beneficial ownership regime.

Legislation, which came into force on 1 July 2017, requires certain Cayman Islands’ companies and limited liability companies to identify their individual beneficial owners and relevant legal entities, maintain beneficial ownership registers at their registered offices and for the information on the registers to be stored in encrypted form on a secure offline search platform established by the Minister of Financial Services as the competent authority. The platform is ‘air-gapped’, or in other words not connected to the internet or any other network, for security purposes.

The purpose of the legislation is to expedite access to beneficial ownership information in response to proper and lawful requests from specified law enforcement agencies and not to materially expand the scope of such requests or the required responses. During negotiations with the UK in the run-up to the introduction of the new beneficial ownership regime, the Cayman Islands government successfully maintained that beneficial ownership information should be non-public until such time as public registers became the accepted international standard. The platform is searchable only by the competent authority and is not publicly accessible. Partnerships, trusts and foreign companies are out of scope.

The introduction of the beneficial ownership regime is less significant for the Cayman Islands than it might be for other jurisdictions because the Cayman Islands’ largely institutional, regulated business model is accustomed to providing beneficial ownership information to meet a variety of international requirements. The Cayman Islands has for many years required licensed service providers to verify the identity of beneficial owners of Cayman Islands companies at a 10 per cent threshold, which is more onerous than the 25 per cent threshold seen in other jurisdictions. Beneficial ownership information is also collected by the Cayman Islands’ financial regulator in relation to licensees and, in addition, by the Cayman Islands’ tax information authority for tax transparency purposes. Exemptions to the new beneficial ownership legislation are designed to prevent duplication.

The Cayman Islands is recognised internationally for its strategy of adherence to global standards on transparency and international cooperation and, true to form, has delivered on its commitment to the UK, while doing so in a manner which is appropriate for the Cayman Islands. However, few with experience of the Cayman Islands financial services industry considered there to be a need for a beneficial ownership regime.

While business continues as usual in the Cayman Islands following the introduction of the new beneficial ownership regime, the regime does create a need for legal entities to determine whether they are in scope or exempt. Also, while the obligations of the beneficial ownership regime are applicable primarily to in scope companies, their beneficial owners, relevant legal entities and shareholders are also subject to proactive obligations of which they need to be aware in order to avoid inadvertent breaches.

Participants in the financial marketplace have perfectly legitimate reasons for wanting to preserve a degree of privacy. The non-public beneficial ownership regime, coupled with the existing anti-money laundering regime is an effective system which helps guard against illicit activity. Unlike other regimes (which may be public), the Cayman Islands overall regime includes a verification requirement and is not reliant purely on self-reporting (which is clearly vulnerable to abuse). The view from the Cayman Islands is that, although transparency regimes need not be public to be effective, they should apply to all jurisdictions.

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